The
principal obligation of a lawyer in representing a client is to pursue
zealously the interests and objectives of the client within the bounds
of the law. As stated in DR 7-101(A), a lawyer must not intentionally 'fail
to seek the lawful objectives of the lawyer’s client through reasonably
available means permitted by law and these disciplinary rules.' At
the same time, the lawyer is responsible to the law and the rules governing
the conduct of lawyers. It is no defense to a violation of a disciplinary
rule that the lawyer acted on the client’s instructions. DR 1-102(C);
MR 5.2(a). Although the lawyer-client relationship is grounded in part
on principles of agency, a lawyer is nevertheless required to exercise
independent judgment about the ethical limits of her conduct.

One place where the disciplinary rules
limit the activities of a lawyer on behalf of a client
is DR 7-102(A)(7), which instructs that a lawyer shall
not 'counsel or assist the lawyer’s client in
conduct that the lawyer knows to be illegal or fraudulent.'1 This
prohibition against advising clients to engage in fraud
or illegal conduct does not, however, preclude a lawyer
from discussing the legal consequences of a proposed
course of conduct or from assisting a client in a good
faith determination of the validity, scope or meaning
of the law.2

The rule that a lawyer can discuss, explain
and predict the consequences of a proposed course of
conduct, but cannot counsel or assist in the wrongful
conduct, is akin to the prohibition against aiding
and abetting a criminal actor. Not surprisingly, the
rule is easier to state than to apply. When does providing
information or advice become encouragement or facilitation?
When will a lawyer’s warnings, intended to deter wrongful
conduct, be regarded as tacit instructions on how to
engage in it successfully? When does failure to withdraw
constitute ratification or participation?

The comment to ABA Model Rule 1.2(d)
is helpful. It states that a lawyer is not prohibited
from giving an honest opinion about the actual consequences
that are likely to result from a client’s conduct.
Also, the fact that the client uses the lawyer’s advice
to commit a crime or fraud does not make the lawyer
a party to the conduct. 'There is a critical distinction
between presenting an analysis of legal aspects of
questionable conduct and recommending the means by
which a crime or fraud might be committed with impunity.' The
comment also notes that determining the validity or
interpretation of a statute or regulation may require
a course of action involving disobedience of the statute
or regulation or of the interpretation placed upon
it by the government.

Counseling about fraud or illegal conduct
means advising the client about the legality of contemplated
activities with the intention of facilitating or
encouraging the client’s action. Assisting means
providing professional services, such as document preparation
or negotiations, with the same intent. §94(2) Restatement
3d, The Law Governing Lawyers, Comment a. Lawyers routinely
advise clients about activities on which the law is
uncertain. A lawyer who does so with the intention
of providing help on how to comply with the law does
not act wrongfully even if the client uses the advice
for the wrong purpose or if a court subsequently determines
that the advice was incorrect. If the lawyer’s advice
is wrong because of negligence, the lawyer may be liable
to the client for the harm caused, but the lawyer will
not be subject to professional discipline for counseling
wrongful conduct.

For purposes of DR 7-102(A)(7), fraud
refers to conduct that is actionable in Oregon in a
tortious sense. In re Hockett, 303 Or 150, 157-158,
734 P2d 877 (1987) (fraud requires, among other things, 'a
false representation to another with the intent that
the other act upon the false representation to his
or her damage'). ABA Model Rule 1.0 defines fraud
as 'conduct that is fraudulent under the substantive
or procedural law of the applicable jurisdiction and
has a purpose to deceive.' Accordingly, fraud
may include the failure to provide information without
which a statement is materially false.

DR 7-102(A)(7) prohibits assisting with
conduct the lawyer 'knows' is fraudulent.
The Oregon Code has no definition of 'knows,' but
ABA Rule 1.0 defines it as 'actual knowledge of
the facts in question.' The ABA Standards for
Imposing Lawyer Sanctions, which the Oregon Supreme
Court consistently applies in deciding disciplinary
cases, defines 'knowledge' as 'the conscious
awareness of the nature or attendant circumstances
of the conduct but without the conscious objective
or purpose to accomplish a particular result.' While
a lawyer has no general duty to investigate a client’s
affairs, the lawyer must inquire further when it would
be reasonable to do so. Clearly, a lawyer cannot ignore
obvious warning signals about the client’s purpose
in seeking the lawyer’s help. Actual knowledge of the
client’s intent can be inferred from the circumstances,
and a lawyer’s intentional facilitation can be inferred
if it should have been apparent to the lawyer under
the circumstances that the client would use the lawyer’s
help to further wrongful conduct and the lawyer provided
the help nonetheless. On the other hand, mere suspicion
that the client might commit fraud is not enough to
make it improper for the lawyer to offer assistance,
including advice about the possible consequences of
various courses of action.

The Oregon Supreme Court has discussed
the application of DR 7-102(A)(7) in a number of cases.
The seminal case is In re Hockett, supra, which
is cited in every subsequent opinion. In Hockett,
the lawyer assisted two couples with sham divorces
to shield the husbands’ interest in marital assets
from creditors. The transfers were subsequently set
aside as fraudulent. The court expressly recognized
that a lawyer must be able to advise and assist clients
without fear of discipline if the lawyer is wrong in
interpreting close questions of law. 'He or she
must be given some latitude to be wrong.' 303
Or at 160. Upon the facts before it, the court held
that neither the lawyer nor his clients had engaged
in any fraud 'in a tortious sense,' because
there was no false representation with the intent that
it be acted upon. However, the court found a violation
of DR 7-102(A)(7) because the lawyer knew the property
transfers were forbidden by statute and therefor illegal.
The lawyer was suspended for 63 days.

The lawyer’s conduct in In re Dinerman, 314
Or 308, 840 P2d 50 (1992), led to the opposite conclusion.
The lawyer took out loans in his own name as an accommodation
for his client, whose borrowing exceeded the bank’s
lending limits. The court found there was no clear
and convincing evidence that the lawyer knew he was
helping his client violate banking laws. However, the
court found that the lawyer knew the loans were fraudulent
when he assisted his client in obtaining them. The
lawyer was suspended for 63 days.

Another case in which the lawyer was
found to have assisted his client with fraud is In
re Benson, 317 Or 164, 854 P2d 466 (1993). There,
the lawyer assisted his client in creating sham encumbrances
on real property as a way to get advance warning of
a possible criminal forfeiture action against the property.
The lawyer argued that the transaction were not fraudulent
because there was no intent to mislead. The court disagreed,
finding clear evidence that the lawyer intended that
the false nature of the mortgages go undetected and
that they would be acted upon to give the desired notice.
The lawyer was suspended for six months.

Not every incident of helping a client
transfer assets will violate DR 7-102(A)(7), if the
lawyer has no fraudulent intent. In In re Taylor, 319
Or 595, 878 P3d 1103(1994), the lawyer took a trust
deed on the client’s unencumbered property to secure
fees for anticipated criminal and civil charges arising
out of an automobile accident that resulted in a death.
Shortly thereafter, the lawyer helped the client cash
out three installment contracts. The contract proceeds
were delivered to the client, who lost the money gambling.
Reiterating that DR 7-102(A)(7) prohibits only assisting
a client with conduct that the lawyer knows to be fraudulent,
the court found no violation of the rule. The court
found that the trust deeds on client property were bona
fide security for fees and not an attempt to put
the assets out of the reach of the client’s creditors.
The court also accepted the lawyer’s contention that
the purpose of cashing out the contracts was to have
funds available to offer a structured settlement. In
the absence of fraudulent intent, the lawyer’s delivery
of the cash to the client was not unethical and the
lawyer was not responsible for the client’s subsequent
dissipation of the cash. The lawyer was found not guilty
of the charges.

Lawyers are not clairvoyant and the client’s
wrongful intent will not be imputed to the lawyer. In
re Claussen, 331 Or 252, 14 P3d 586 (2000). In
that case, the lawyer’s client sought bankruptcy protection
after the entry of an adverse judgment. One of her
assets was an insurance policy purchased shortly before
the bankruptcy filing. Upon motion by a creditor, the
court indicated it would dismiss client’s bankruptcy
on the ground that it was filed in bad faith. Before
the court entered the order, the lawyer assisted the
client in cashing in the policy without informing the
insurance company of the status of the bankruptcy;
the client subsequently absconded with the money. The
court declined to find that the lawyer had assisted
his client with fraud in violation of DR 7-102(A)(7),
because there was not clear and convincing evidence
of his wrongful intent. The court found equally plausible
the bar’s contention that the lawyer was motivated
to help his client keep the cash from her creditors
and the lawyer’s argument that he was following his
client’s legitimate demand for her money. The court
noted that while the lawyer’s opinion may have turned
out, in hindsight, to be incorrect, he had a good faith
basis for helping the client secure the cash. The complaint
was dismissed.

Recently, the court had an opportunity
to address how a lawyer’s knowledge of the client’s
fraud can be inferred from circumstances and the inadequacy
of the 'willful blindness' defense. In In
re Albrecht, 333 Or 520, 42 P3d 887 (2002), the
lawyer was accused of knowingly assisting his clients
with a money-laundering scheme in violation of federal
law. The lawyer admitted to receiving and depositing
money into his trust accounts over a period of time
and then disbursing the money to the clients at their
direction. The lawyer also admitted that the money
came from the clients’ illegal drug activity, but denied
having actual knowledge of that fact at the time he
received and disbursed the funds. He also denied that
he knew the trust account activities were designed
to conceal the illegal source of the money. The lawyer
claimed to be the unwitting dupe to his talented con-men
clients.

The court found several facts that led
to 'objectively reasonable inferences' that
the lawyer understood the purpose of the trust-account
transactions and the unlawful source of the funds.
For instance, the lawyer knew that one of the clients
had been involved in illegal drug activity in the past,
all the deposits were in amounts less than $10,000,
and many of the cashier’s checks given to the lawyer
bore names that were obvious aliases. The court also
noted that the lawyer handled these clients’ funds
in a 'markedly different' manner than he
did other client funds. Specifically, the court found
that the lawyer’s careful deposits toward the end of
the representations could only suggest that he had
become concerned about criminal exposure.

As these cases indicate, the line between
advising a client about questionable activities and
knowingly assisting the client with fraud is not clear
and bright. Every case must turn on its own facts.
Lawyers can take comfort in the knowledge that they
will not be subject to discipline merely because the
client uses the lawyer’s well-intentioned advice to
engage in wrongful conduct or because the lawyer’s
good-faith advice about unsettled law turns out to
be wrong. At the same time, we cannot turn a blind
eye to the obvious and assume that by not questioning
the client’s motives or intent we are insulated from
all risk. The discipline rules allow room to be wrong,
but not to encourage or facilitate wrong-doing.

ABOUT THE AUTHOR
Sylvia E. Stevens is assistant general counsel of the Oregon State Bar. Reach
her at (503) 620-0222, ext. 359, or by e-mail at sstevens@osbar.org.

ENDNOTES

1. See, also, ABA Model Rule 1.2(d).

2. This permission is explicit in ABA
Model Rule 1.2(D) and the comment thereto. A similar
permission may be inferred from DR 7-102(A) (2),
which allows the assertion of a claim or defense
unwarranted
under existing law if it can be supported by 'good
faith argument for an extension, modification or reversal
of existing law. Also, DR 7-106(A) allows a lawyer
to take appropriate steps 'in good faith to test
the validity' of a standing rule or ruling of
a tribunal.